The author is a Forbes contributor. The opinions expressed are those of the writer.

Loading ...

Loading ...

This story appears in the {{article.article.magazine.pretty_date}} issue of {{article.article.magazine.pubName}}. Subscribe

Like the value investing of Warren Buffett? Try these five mutual funds: Each follow his wide-moat strategy. (Image credit: AFP/Getty Images via @daylife)

Each time Chad Meade and Brian Schaub, who together manage the $3.2 billion Janus Triton fund, fly from DenverInternational Airport, they owe their safe departure to a small aerospace company 2,000 miles away.

Hollywood, Fla.’s Heico makes some 6,000 Federal Aviation Administration-approved airplane parts, things like the batteries that juice emergency lights and compressor blades that power jet engines. Heico supplies the major airlines. However, making parts for planes is no run-of-the-mill manufacturing gig. Heico must ensure the parts meet FAA regulations, a rigid process but one with a beneficial ­consequence: It keeps competition relatively low and gives Heico power over its prices.

In other words, Heico is what Warren Buffett might describe as a small company with a wide moat. The company’s sustainable business model led Meade and Schaub to buy Heico shares for their small-cap growth fund last spring. “If you find that rare company that can raise prices year in and year out, that’s a place where we want to start spending our time and attention,” Schaub says.

Janus Triton’s managers are among the best practitioners of the Buffett-­inspired investing strategy of owning a business with a substantial moat— companies that have a sustainable ­competitive advantage over rivals. Growth-focused buyers view a well-fortified moat as fuel to greater expansion. Value investors see it as protection from competition in the years to come.

With the help of Morningstar, which now rates funds based on how ­moat-­fortified their holdings are, we screened for these best-performing Buffett-wannabe funds on a three- and five-year basis.

Small-cap-focused Triton won top honors in its group with an annualized five-year return of 8.4%, versus a 2.1% gain in the Russell 2000. The fund (expense ratio of 0.93%) takes a bottom-up approach and has a turnover ratio of 42%—about half its category average. It owns 93 stocks, buying into market caps from $1 billion to $4 billion and selling at $10 billion.

Schaub and Meade also like to look at a company’s patent portfolio when sussing out a potential investment. This has led to an investment in biomedical company Gen-Probe, which holds more than 600 patents. Gen-Probe produces a series of blood-testing products that can quicken a laboratory’s pace. Importantly, it’s not dependent on a single drug’s sales or changes brought on by Obama­Care. The stock has returned around 65% since they added it to the portfolio in spring 2010.

American Century Mid Cap Value

Kevin Toney and three colleagues run the $2.3 billion American Century Mid Cap Value ­(expense ratio of 1.5%). It has returned 1.7% over the last five years compared with a 0.2% loss for the Russell MidCap Value Index. Better yet, it sank only 24.9% in 2008, when the index shed 38.4%.

One of American Century’s favorite moat stocks is Phoenix, Ariz.’s Republic Services. Each day its more than 1,700 blue garbage trucks fan out across the country, picking up, among much else, 3 million tons of recyclables each year. Revenues hit $8.2 billion last year, and net profits reached $589 million.

Where’s the moat in garbage? Landfills. Republic has 385 landfills and transfer stations, making it vertically ­integrated. Republic avoids the costs that would accompany contracting a­ company to house its trash.

“It’s not easy to get approval for a landfill because of the ‘not-in-my-backyard mentality,’ ” Toney says.